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Tuesday, January 29, 2008

The Economist as a Terrorist

An interview I gave to a Sri Lankan paper, where I pointed to the lack of an evidence-based policy debate on economic issues in Sri Lanka, seemed to have struck a chord. An economist friend wrote, "When we speak out we are labeled as ‘terrorists.’" The head of a Colombo-based think-tank, the Centre for Poverty Analysis (CEPA), wrote "Your comments on the lack of an evidence-based economic debate in Sri Lanka is hitting our email networks and websites, and is something we’ve been discussing for sometime within CEPA, in the wider context of development and poverty eradication.

Sri Lanka needs debate on economic policy centered on real evidence or research instead of extreme posturing based on ideology if the island is to progress, a top development economist said.

"Sri Lanka is already a middle income country with about 1300 US dollars of per capita income," Shanta Devarajan, chief economist for South Asia at the World Bank, told LBO in an interview on the sidelines of the annual meeting of the Bank and the International Monetary Fund here.

"But if you compare it with other countries at the same level, the economic policy debate is much more evidence-based elsewhere. In India, which is about 1000 dollars per capita, I find that the nature of economic policy debate is evidence based.

"Right now in India there is a vigorous debate about opening the capital account. People are writing papers and analyzing and participating in that debate. In Sri Lanka it is usually an ideological debate."

Devarajan points to a recent 500 million US dollar sovereign bond as a case in point where the government depicted the bond as a "great thing" while the opposition claimed it was "horrible."

"The truth of the matter is that they are both wrong," says Devarajan. "Ideally they should cut the budget deficit, but politically it is difficult to do. There are also constraints such as defence and interest costs, which may be difficult to avoid."